A daily loss limit is a fixed dollar amount you pre-commit to as the maximum acceptable realized loss in a single session. Hit the limit, close the platform, walk away.
The purpose is structural: by the time you've crossed the limit, your decision quality has typically degraded (see: tilt). The limit prevents an emotional 'one more trade to get it back' spiral.
Typical implementations: a fixed dollar amount (e.g. $500/day), a percent of account (1-2%), or 'three losing trades and stop.' Each has tradeoffs — fixed dollar is simple but ignores account growth; percent scales but requires real-time math.
Most prop firms impose daily loss limits as a condition of capital allocation, often around 2% of allocated capital. Retail traders frequently benefit from imposing the same discipline on themselves, though the rule is only useful if enforced — TradeFlow Quantum's daily-loss-limit setting surfaces a banner when you cross it (soft signal, not a block).